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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Return to Sender who wrote (6375)	10/22/2002 12:33:21 AM
From: The Ox	Read Replies (1) \| Respond to of 95526

I'm not a big fan of taking a past market based statistic (specifically, I'm down on using the market's past P/Es) and extrapolating how our current market's either over valued or under valued. There are too many factors which differ from period to period. Interest rates, money flows, GDP, unemployment, taxes, tariffs, commodity pricing and overall costs of goods are just a few of the factors that come into play when looking at how today's P/E should be compared to those of previous markets, imo. We should be very cautious about using P/Es as a gauge for the present (or future). P/Es easily fluctuate and they may not give us an accurate indication of current or future value. Here's just one of many examples which help to illustrate this point. R+D reduces earnings but doesn't seem to have any place in the discussion when P/Es are mentioned. Some companies have very low earnings during tough times because they are pouring money into their R+D departments. Future prospects might be huge, but the company's P/E may or may not reflect the market's ability to put a "fair" value on that future.

To: Return to Sender who wrote (6375)	10/22/2002 6:42:10 AM
From: w0z	Read Replies (2) \| Respond to of 95526

I'm still digging but there has to be a correlation between high interest rates and high dividend returns. I don't think so. From what I recall of the high interest rates in the early 80's, this was a fairly short-lived peak. Most companies make dividend adjustments only on a very long-term basis because they never want to be in the position of cutting their dividend. The only time I've seen corporate dividends reach such high levels is usually when their stock price has plummeted and they haven't (yet) cut their dividend. I think you might be getting confused with corporate bonds which of course must track the general debt markets.

To: Return to Sender who wrote (6375)	10/22/2002 9:29:14 AM
From: BWAC	Read Replies (1) \| Respond to of 95526

<But how do we explain the P/E ratio> RTS, During those periods the interest rate was high. CD rates 10%ish. That we know. Right? Dividend rates should correspondingly be higher than normal as well. Not much money in stocks when interest rates are 10% risk free type of thinking. Higher dividends had to be offered to entice continued investment possibly. Leaving the question of PE and how the dividend yields got to 6% or 7%ish. Two ways that I see. Either stock prices fell with constant static dividend amount. Or dividend amount increased. Given the terrible economic period, I doubt dividends increased as profits more than likely were not increasing either. (Maybe some of your referenced sites could answer this?) So in theory to achieve a "market yield" of 6%plus, the stock price had to fall. Thus the PE's fell as well. A PE of 30, yield of 2% or 60 cents, earnings of $1.00, stock price of $30. Could have become: A PE of 10, yield 6% or 60 cents, earnings of $1.00, stock price of $10.

To: Return to Sender who wrote (6375)	10/22/2002 9:42:05 AM
From: Kirk ©	Read Replies (1) \| Respond to of 95526

1974--The S&P sold at 7.5 times earnings while yielding 5.1% 1980--The S&P sold at 6.8 times earnings while yielding 5.7% But how do we explain the P/E ratio. I am afraid that it is still too high but I am sure I could be wrong again. I don't know what the market will do in the short term, but over 2o years, it should outperform most other investments. A buddy and I've been comparing calif real estate with the Market from the 1970's through today and they follow pretty closely in total return. Efficient market? Anyway, the variable lacking from your P/E analysis is inflation. The Fed Funds rate is an attempt to represent this. If hard assets like Gold or real estate are inflating at 17% a year, why would I want to invest in a company that is growing by 10 or 15% and ties up depreciating assets while doing so? There IS NO REASON until you think Gold or whatever has peaked out and this doesn't happen until inflation dies. That company in times of high inflation, to compete with hard assets, has to increase the dividend rate to compete for capital. I think it all works out in the cost of capital. Anyone have a chart showing the cost of capital? I know that when I was working at Agilent/HPQ that when we had a new R&D idea we had to show a return better than the cost of capital which was 15%. Once that hurdle was met, ideas were then ranked on risk vs their return. The majority of the risk was in how long it took and how much total capital consumed before the project paid for itself. We even had a metric BET for Break Even Time. Anyway, any talk of P/E without inflation is just moving air. Kirk